Joan Has Been the Payroll Supervisor at York Distribution Company

question 57

Essay

Joan has been the payroll supervisor at York Distribution Company (YDC)for ten years.She has never missed a payroll and Farah,the owner of the company,is delighted with her conscientiousness and knowledge.This is particularly important,as Farah spends a lot of time on the road drumming up new business,and needs competent personnel back at the office.
There are two accounting personnel at the office,a receptionist,five shipping and receiving personnel,and thirty sales people employed by YDC.Office and shipping/receiving personnel are paid a salary,while the sales people are paid a monthly base salary plus a percentage of their sales,calculated quarterly.The base salary is low,at $20 000,with a 2% commission,calculated based on sales less any bad debts written off related to their customers.
Joan prints off the sales by customer every month and uses this information to calculate commissions.She then prepares the payroll cheques and gives them to Farah,who signs them and gives them to the sales staff at the monthly sales meeting.The cheques are written against a payroll imprest bank account,kept at a balance of $1000.This account is not reconciled,as the staff are very overworked with the increasing volume of business handled by the company.
Required:A)Identify control weaknesses and their impact,and provide recommendations for improvement.B)What is the impact of the control weaknesses upon your audit approach?

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Definitions:

Head Gasket

A critical sealing component located between the engine block and cylinder head in an internal combustion engine, preventing leakage of coolant or oil into the cylinders.

White Exhaust Smoke

Emission indicative of coolant entering the combustion chamber, often due to a blown head gasket or cracked engine block.

Detonation

An uncontrolled, explosive ignition of fuel within an engine's cylinder after the spark plug has fired, often causing engine damage.

Circuit

In electricity, a path for electrons to flow from a source of higher electrical potential to a source of lower potential.